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Two Craft-Beer Companies, Only One 'Buy'

BOSTON ( TheStreet) -- The craft-beer industry, against steep odds, has been an amazing growth story.

Craft brewers, the marketing term for small and independent companies, saw barrel volume increase 11% and retail sales rise 12% last year, according to the Brewers Association. Overall U.S. beer sales slumped 1%. While the craft-brewing segment represents only 5% of the total beer market, it commands higher profit margins, making the potential for market-share gains almost inevitable.

Consumers have more beer options than ever, and they're picking quality over price. The consensus among beer aficionados is that the craft beers of today offer more taste and satisfaction than any of the big-brand manufacturers.

So how do investors capitalize on the craft-beer market? There are two publicly traded craft brewers: Boston Beer (SAM - Get Report) and Craft Brewers Alliance (HOOK). The two companies are dwarfed by conglomerate beer makers Anheuser-Busch InBev (BUD) and Molson-Coors (TAP - Get Report).

The majors are moving quickly to acquire specialty brewers wherever they can. Anheuser-Busch recently announced the acquisition of Goose Island Beer in Chicago for $39 million. More deals like this will be on tap. Molson-Coors last year announced the establishment of a new specialty division, Tenth and Blake, which features craft brands such as Blue Moon and Leinenkugel's.

Yet while more acquisitions are likely, many of the potential suitors such as the privately held Sierra Nevada, Magic Hat or Harpoon Brewery aren't available to investors. So let's take a look at the two publicly traded options -- Craft Brewers Alliance and Boston Beer -- to see if investors can still profit.

Craft Brewers Alliance: Brands include Redhook, Widmer Brothers and Kona Brewing Co. Craft Brewers Alliance was a 42% owner in Goose Island, for which it received $16.3 million from Anheuser-Busch InBev. Craft Brewers Alliance has deep relations with Anheuser-Busch InBev, which is centered on a third-party distribution agreement. Since Anheuser-Busch InBev also had a similar relationship with Goose Island, might there be the potential for another acquisition with Craft Brewers Alliance? At this point, the only potential suitor would be Anheuser-Busch InBev, which owns 32% of Craft Brewers Alliance, and is the sole distributor for all its brands.
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